(Source: European Parliament)
MEPs and EU governments struck an ambitious deal on compulsory reporting on environment, social affairs and governance
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From 2024, large companies will need to publicly disclose information on the way they operate and manage social and environmental risks.
On Tuesday, MEPs and EU governments struck a provisional agreement on new reporting rules for large companies. The Corporate Sustainability Reporting Directive (CSRD) will make businesses more accountable by obliging them to disclose their impact on people and the planet. This aims to end greenwashing and lay the groundwork for sustainability reporting standards at global level.
New EU sustainability standards
The new EU sustainability reporting requirements will apply to all large companies (with over 250 employees and a 40 million euro turnover, as defined in the Accounting directive), whether listed or not. Companies will have to report on their impact on the environment, human rights, social standards and work ethics, based on common standards.
Reliable information and compulsory audits
Today’s agreement stipulates that the information companies provide on their impact on the climate or human rights will be independently audited and certified. Financial and sustainability reporting will be on an equal footing and investors will finally have access to reliable, transparent and comparable data.
Non-EU companies to follow the rules too, subcontractors protected
MEPs successfully insisted that non-EU companies with substantial activity in the EU market (150 million euro in annual turnover in the EU) will have to follow equivalent reporting rules. Member states will supervise compliance with the help of the Commission.
A handful of SMEs listed on public markets will be subject to lighter reporting standards. MEPs managed to secure the possibility for them to opt out of the new system until 2028. MEPs also inserted guarantees so subcontractors can only be asked by their contractual partners to provide information according to a lighter version of reporting standards.
Pascal Durand (Renew Europe, FR), who led the negotiations for the Parliament, said: “Today, information on a company’s impact on the environment, human rights and work ethics is patchy, unreliable and easily abused. Some companies do not report. Others report on what they want. Investors, consumers and shareholders are at loss. From now on, having a clean human rights record will be just as important as having a clean balance sheet”.
“The European extra-financial audit market will be standardised, much more rigorous and transparent. Parliament succeeded in securing an opening of the audit market by member states in order to make room for new certified players to become major players and not just leave it in the hands of the financial auditors, notably the big four”, added Mr Durand.
On Wednesday, 22 June, from 17.00 CEST, Pascal Durand and Commissioner for Financial Services, financial stability and Capital Markets Union Mairead McGuinness will give a joint press conference in the European Parliament’s press conference room in Brussels. More details on how to follow are available in this media advisory. Watch the recording of the press conference here.
Parliament and Council will have to formally approve the agreement before it is published in the EU Official Journal. It will enter into force 20 days after publication and its provisions will have to integrated into member states’ national laws after 18 months.
The non-financial information that companies are currently incentivised to report is largely insufficient for investors and other stakeholders. Reported data can also be hard to compare. Investors and civil society want to know about the impact that companies have on people and the environment. The new law is one of the cornerstones of the European Green Deal and the Sustainable Finance Agenda.